Different Types of Home Appraisals
There are four different home appraisal types. The type of valuation undertaken depends on the specific circumstances and mortgage loan program.
Generally, when a property is sold, the mortgage lender requests a full appraisal by licensed appraisers such as Triangle Appraisal Group (TAG). An appraiser visits the property and assesses it inside and out.
Secondly, the appraiser does an exterior-only appraisal, often by driving past to gauge the property’s overall condition. Thirdly, a rental analysis appraisal estimates the potential rental value of an investment property. The final type is a broker price opinion (BPO), performed by a real estate professional.
Overview of Appraisal
Let’s start by defining a home appraisal:
A home appraisal is a valuation of a property, as estimated by an authorized, unbiased person.
It determines fair market value, based on its intrinsic worth, the worth of comparable properties in the area, the local amenities, and current market trends.
A home appraisal is usually necessary for a pending purchase, but may also be for marketing, mortgage, insurance, or refinancing purposes. Examples include a homeowner wanting to know the right asking price, or estimating the value of a deceased estate.
The appraisal can influence a potential sale significantly. This effect can be negative if the appraisal is lower than the sale price, or positive if the appraisal is higher than the sale price. An appraisal is a vital calculation that protects banks and other lenders. They can avoid incurring a loss on a loan, or the risk of the borrower defaulting on repayments.
How Are Home Appraisals Conducted?
In most circumstances, the mortgage lender will initiate a home appraisal. Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), it’s up to the lender to select and contract an Appraisal company, such as TAG. The appraisal group appoints a licensed, certified appraiser to perform an impartial assessment, without any undue influence from any of the parties involved in the transaction.
The actual appraisal may take anywhere between a few minutes and a few hours, depending on the details and extent of the property, the reasons for the appraisal, and the selected method of appraisal. The appraiser gathers and analyzes all the necessary information and data to complete their reasonable estimate of the home’s value. This includes values of comparable homes and recent sales in the area, called “comps”.
They prepare the appraisal report, which takes about 3-5 days after inspection for the TAG team. There are different forms to complete for each type of appraisal, which have been developed by Freddie Mac and Fannie Mae. These are the two large companies that guarantee most of the mortgages granted in the U.S. The final report is submitted to both the lender and the buyer. The seller may also request a copy.
What Are the Different Types of Home Appraisals?
Let’s examine the four types of home appraisals, their differences and uses, and the industry jargon for the forms
1. Full Appraisal
- This is the most commonly requested appraisal by mortgage lenders.
- The appraiser schedules an appointment to view the property, usually within two days of receiving the instruction.
- They perform a thorough inspection of the interior and exterior. They take photos and measurements and make notes about the home’s condition and features.
- An important aspect is comparing the home to other residences in the vicinity. After the home visit, the appraiser completes a very detailed Form 1004: Uniform Residential Appraisal Report. It’s colloquially known as a “ten-o-four”.
2. Exterior-Only Appraisal
- These reports are typically used for appraisal reviews if there is a dispute, or for a first-lien mortgage to buy or refinance a home. It may be for a stand-alone second-lien mortgage done by a small bank. There may also be a problem gaining access to the home.
- The appraiser drives by the property. They may take photos of the exterior, but do not go inside—they make an extraordinary appraisal of the unseen interior.
- This type of appraisal is written up on Form 2055: Exterior-Only Inspection Residential Appraisal Report. It’s known as a “twenty-fifty-five.” For more details on what a drive-by appraisal involves, visit Quicken Loans.
3. Rental Analysis
- This is an addendum to a full appraisal for a loan on an investment property.
- The appraiser performs an analysis comparing the property’s potential rental income to other leased rental homes in the area. It’s similar to researching “comps”.
- The appraiser completes Form 1007: Single Family Comparable Rent Schedule called a “ten-o-seven”.
4. Broker Price Opinion (BPO)
- A real estate broker carries out this “appraisal lite”. It’s useful when you’re looking to sell a house, cancel mortgage insurance on a home loan, or apply for a stand-alone second-lien mortgage. BPOs are not accepted for any mortgages sold to Fannie Mae or Freddie Mac.
- For more information on when a Broker Price Opinion might be appropriate, visit LendingTree.
Average Price of a Home Appraisal
The cost of a home appraisal varies according to the type of appraisal, and the estimated value, location, and size of the property being appraised. For granting a mortgage loan, the lender organizes the appraisal, but the buyer is expected to pick up the tab. This is payable even if the loan isn’t granted.
- Full Appraisal: Expect to pay an average of $450 – $ 500 for a moderately priced single-family home.
- Exterior-Only Appraisal: This will cost you about $300 – $400.
- Rental Analysis: Add an extra $150–$200 to your appraisal bill.
- Broker Price Opinion: A real estate broker will charge you $150–$300.
Finding an Appraiser for Your Home
There are different appraisal types depending on whether you’re buying, selling, or refinancing your home. Obtaining a prompt, impartial appraisal that accurately reflects the fair market value is a critical part of the process. It affects the financing and transacting of the property and provides reassurance that you’re making a good investment.
Whether you’re a buyer, seller, or mortgage lender, trust Triangle Appraisal Group (TAG) for the finest quality residential property appraisal services across the state of North Carolina- TAG us in!
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FAQs
The most commonly used type of appraisal is the Full Appraisal, also known as the Uniform Residential Appraisal Report (URAR). This comprehensive evaluation involves an interior and exterior inspection of the property, along with a thorough analysis of market trends and comparable sales in the area. It provides a detailed assessment of the property’s value, which is crucial for mortgage lending, refinancing, and purchasing decisions.
A drive-by appraisal is less comprehensive than a full appraisal. In a drive-by appraisal, the appraiser only evaluates the exterior of the property and relies on existing property records for additional information. This type is often used when there are concerns about gaining access to the property or for lower-risk loans. A full appraisal, on the other hand, includes a detailed inspection of both the interior and exterior of the property, providing a more accurate and complete assessment of its value.
A Broker Price Opinion (BPO) is used in real estate to estimate the value of a property. It is typically quicker and less expensive than a formal appraisal and is often used for setting sales prices, evaluating collateral in loan transactions, or managing real estate portfolios. However, it’s important to note that BPOs are not accepted for mortgages sold to Fannie Mae or Freddie Mac.
A BPO (Broker Price Opinion) and a CMA (Comparative Market Analysis) both estimate a property’s value but serve different purposes and are conducted by different professionals. A BPO is conducted by a licensed real estate broker and is often used by banks for loan-related decisions. A CMA is typically used by real estate agents to help sellers set listing prices and buyers to make offers. CMAs may be more detailed about the local market conditions compared to BPOs.